The Work Opportunity Tax Credit (WOTC) is one of several business tax credits that are proving to be vastly beneficial to companies through the COVID-19 pandemic. The program provides an incentive to businesses to hire people from targeted groups who typically experience barriers to finding a job. For each new hire that falls into an eligible category, businesses can earn a tax credit. The WOTC is usually around $2,400 per new hire, but it can be as high as $9,600. Taking advantage of this valuable credit, however, doesn’t mean sacrificing a positive candidate experience.
How the WOTC Works
Like unemployment insurance, each state administers the WOTC, even though it is a federal program. To qualify, the company must have each new hire that belongs to a targeted group complete IRS Form 8850. This form contains seven questions that correspond to the criteria the IRS and Department of Labor (DOL) developed. Along with Form 8850, the company must complete ETA Form 9062, which is a DOL requirement. The company — or its service provider — sends both forms to the designated state agency, and the agency verifies whether that individual actually meets the credit-eligible criteria. Then, the agency either issues a certification or identifies the discrepancy.
There is a complex set of criteria that defines whether or not a new hire is eligible, but it consists broadly of the following:
- People in families that are or have been in the Temporary Assistance for Needy Families (TANF) program
- People in families receiving food stamps (i.e. SNAP benefits)
- Anyone receiving Supplemental Security Income (SSI)
- Youth hired to work during the summer from an Empowerment Zone or an enterprise or renewal community
- Long-term unemployed individuals who have received unemployment compensation
- Veterans who are unemployed, disabled, or receiving food stamps
Because of the complexity surrounding eligibility and claims, many businesses choose to work with WOTC service providers.
WOTC service providers are professionals who offer expertise regarding the WOTC program. They provide effective screening processes to identify eligible candidates and help employers — and, specifically, employers’ tax departments — calculate and claim the credit. But, because it’s so important to identify all qualified candidates without placing a strain on a company’s hiring process, WOTC service providers often partner with Human Resources, Talent Acquisition and/or Human Resource Information Systems departments.
A few basic factors can help enterprises assess and choose between different WOTC service providers: the solution, the results, and the fees.
Most HR professionals want to ensure that screening for WOTC does not have a negative impact on candidate flow or the candidate experience. This goal makes it important to integrate the WOTC workflow with the recruiting system so that processes are quick, easy to understand and flow seamlessly. Many Applicant Tracking Systems (ATS) offer integrations that allow WOTC service providers to insert a WOTC process within an application workflow. With these pre-developed integrations, it is often fairly straightforward to implement the WOTC in your ATS or Human Resources Management System (HRMS).
However, how a WOTC consultant designs its integration and how it presents the WOTC questions are often critical determinants of the success of any given WOTC program. Consultation with the client is critical in identifying and setting up a process that fits with the current candidate workflow while meeting the needs and culture of the client and optimizing the performance and financial results of the WOTC program.
For example, the IRS-designed WOTC questionnaire (Form 8850) can be difficult to read and understand, so respondents can become confused if a business poses questions in this format. Consequently, the business will likely see multiple candidates abandoning or opting out of the process. This can be the case for any company utilizing similar forms and the IRS language.
Effective surveys will eliminate redundant questions, source information from the ATS through the integration (if possible) and pose the questions in an easy-to-understand format. Given the wide use of mobile technology for HR interaction these days, it is also important that the WOTC experience renders to mobile devices.
Having an effective way of screening candidates is the catalyst for a successful WOTC program because a WOTC service provider will typically handle the rest of the process. Because they handle so much of the process, here are some critical questions you should ask when considering a WOTC provider:
- Do you have a WOTC module that integrates with my ATS and is being used by other companies?
- Do you enable us to make cosmetic changes to your WOTC solution for a consistent look and feel?
- How does your design impact the overall user experience?
Ultimately, participation in WOTC is driven by the value the program presents to the company. Benchmarking the potential credit opportunity with other similarly situated companies can provide a good estimate of the relative value of implementing a WOTC solution. Industry benchmarking also offers insight into results and can help identify areas where improvements are available.
For many companies, it is desirable to pay a percentage of the generated benefit rather than a “transactional” fee. Percentage-based fees ensure that there is always a positive return from the program, and the provider has an incentive to do everything possible to improve and optimize performance. Factors that often go into determining the fee include hiring volume, industry, the ATS and HRMS technology in place.
A low fee or a large tax credit estimate can be alluring as you work to figure out which provider to use. But the best outcomes usually happen when you also consider non-financial factors, such as the impression the program will make on the user. Keep in mind that, even though the structure and amount of fees matter, they aren’t everything.
With a Good Partner, WOTC Success Is More Attainable
The service provider you choose to help you through the program makes a big difference in maximizing your benefits. Choosing a provider who best preserves the user experience, demonstrates an understanding of your culture and process, and offers consultation and flexibility, is central to a successful partnership (and also leads to optimal performance). If you are mindful of the criteria that the WOTC provider is supposed to evaluate, and if you carefully compare the specific solutions, results and fees involved, then you’ll find a user-centric provider that fits your needs and helps your business thrive.